Costly Jet Fuel and weak Rupee reasons for aviation losses to quadruple to Rs 13500 crores by end of fiscal says CAPA

Last Updated: Tue, Sep 04, 2018 11:13 hrs
Jet fuel from sugarcane? It's not a flight of fancy

According to a report, the headache for Indian aviation companies and the sector itself is expected to persist for sometime now. At least till the end of the current fiscal.

Indian aviation companies are not having a gala of time, a fact that has been blamed on rising costs of Jet Fuel and a weaker Rupee.

Those are the same factors that a report from CAPA uses to suggest an estimate of losses.

The losses are estimated to be anywhere in the range of $1.65-1.90 billion by the end of the fiscal. $1.91 billion at the current prevailing rates of 71.12 against the US greenback translates into a loss as massive as Rs 13,512 crores.

The Sydney based Centre for Asia Pacific Aviation published a report on Monday that attributes the loss to uncompetitive cost base on domestic operations and a lack of profitability on international routes.

The rise in Jet Fuel have quadrupled losses, as previous estimates had been hovering at a range of $430-460 million.

Besides, airlines need to raise over $3 billion in near-term based on June quarter estimates, with full service carriers requiring around $2.6 billion, while the low-cost peers needing $400 million, said the Mid-Year Aviation Outlook 2019 report.

Full service carriers are critically placed and could lose $1.75-2 billion in the current fiscal largely because of their uncompetitive cost base on domestic operations and a lack of profitability on international routes, it said.

Government-owned Air India, Jet Airways and Vfull-service are the three full service domestic airlines currently operational in India.

Stating that traffic growth continues unabated but the financial outlook has deteriorated dramatically since January, the report said, "At that time (since January) CAPA India forecast a consolidated industry loss of $430-460 million, subject to oil remaining below USD 70/barrel and the US dollar exchange rate at Rs 65-67."

"Our revised forecast is for an industry loss of $1.65-1.90 billion in FY2019. These projections assume oil at $75-80/barrel and the exchange rate at Rs 70-72," it added.

CAPA estimates that though three budget carriers' - IndiGo, GoAir and SpiceJet - full-year result is likely to range between break-even modest profitability, the possibility of a full-year loss can't be ruled out.

Observing that the domestic airlines industry is facing headwinds, but not a downward cycle as economic fundamentals are strong, CAPA said despite the challenges faced by the aviation sector, the wider macro-economic conditions remained strong.

"With airlines offering low fares, demand for travel will be stimulated. As a result, the domestic traffic is expected to grow at 18-20% this year, and international at 10-12%, consistent with the CAPA India forecast in January.

"We do not see this as a downward cycle at this stage. The trigger for that would be sustained oil prices above $80/barrel and the exchange rate remaining at Rs 70-72," it said.

India had registered double-digit domestic air passenger traffic growth for the 48th straight month in July at 20.82%.

According to CAPA, the near-terms risks and losses are expected to increase until the industry adjusts to the new normal.